Multilevel encoding methods utilizing encoding cards are presently being employed for transmission of financial data. U.S. Pat. No. 4,328,414 shows a card which is unique to the individual based on an individual secret identifying code 11 in combination with additional numbers which are encrypted. After verifying the encoded card the user institution may encrypt the data for private security and control at the banking institution. The encoded card may be used in combination with the individuals personal identifier number 11, at the line of transaction, the account number 13, the bank I.D. 15, and the bank secret key 21. The above described patent requires the implantation of a secret unique identifier as an integral part of the security system.
The present invention provides a transaction system employing a locking and unlocking system which employs a public key to generate a digital signature, a sender unit which decrypts a portion of the encoded card and user identifier number and a receiver unit that decrypts the private key of the public key. The present invention provides a system wherein the decryption of the transmitted data statistically cannot be computated with knowledge of the encoded card and/or of the sender unit algorithm. The present invention provides a means for preventing credit card fraud in at least two major categories, use of invalid cards which have been invalidated by the receiver unit and invalid transactions generated by using the sender unit.